Chapter 7 vs. Chapter 13

If you are considering filing for bankruptcy, it is important to note the differences between Chapter 7 and Chapter 13 bankruptcy.

A Chapter 7 bankruptcy may enable you to get rid of all your unsecured debts, such as unpaid balances on credit cards. In most cases, if you do not have enough income to live on or barely enough income, not counting payment of your credit card and other unsecured debts, a Chapter 7 bankruptcy will dissolve all of your credit card debt. However, if you have a significant amount of spending money left over after your monthly bills are paid and before you pay your credit card balances, you will not be permitted to proceed with a Chapter 7 bankruptcy. Instead you will be required to file a Chapter 13, also referred to as debt consolidation or wage-earner bankruptcy.

In a Chapter 13 proceeding, the court will require you to pay all of your disposable income to the bankruptcy trustee, who will in turn pay your creditors, typically over a period of three years. The amount of your monthly payment to the trustee will be approximately equal to the amount of the cash you ordinarily have after you pay your necessary living expenses. In many cases, you will not have to pay back everything that you owe. For example, if you owe $100,000 in unsecured debt, but you only have $500.00 per month of disposable income available to pay on your debts, your unsecured creditors may receive a combined total of only $18,000 (that’s $500 multiplied by thirty-six months).